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Argonaut Gold Inc
Symbol AR
Shares Issued 177,799,758
Close 2018-11-08 C$ 1.32
Market Cap C$ 234,695,681
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Argonaut Gold loses $2.7-million (U.S.) in Q3

2018-11-08 17:23 ET - News Release

Mr. Pete Dougherty reports

ARGONAUT GOLD ANNOUNCES THIRD QUARTER 2018 OPERATING AND FINANCIAL RESULTS

Argonaut Gold Inc. has released its financial and operating results for the third quarter ended Sept. 30, 2018. The company's quarterly cash flow from operating activities was $10.9-million before changes in operating working capital, with revenue of $41.3-million, a net loss of $2.7-million or a loss per share of two cents, an adjusted net loss (1) of $1.0-million or an adjusted loss per share (1) of one cent, and production of 34,165 gold equivalent ounces (2). All dollar amounts are expressed in U.S. dollars, unless otherwise specified.

Chief executive officer commentary

Pete Dougherty, president and CEO, stated: "We achieved a significant milestone during the quarter in which we produced our millionth gold equivalent ounce, showcasing our commitment to sustainable and profitable mining since launching Argonaut Gold at the end of 2009. Also during the quarter, we had higher production and lower costs compared to 2017, despite the interruption of mining activities at La Colorada, as we are now realizing the positive effects of lower-cost production from our San Agustin mine. During the third quarter at La Colorada, we experienced the impacts of the low grades stacked on the leach pads during the suspension of blasting activities in the second quarter in the form of lower production, although we saw costs normalize as mining activities recommenced upon receiving our explosives permit in late July. Despite these impacts, we are on track to meet the lower end of our 2018 production guidance of 165,000 GEOs [gold equivalent ounces], as all of our operations are now performing very well and we anticipate a very strong fourth quarter."

(1) These are non-IFRS (international financial reporting standards) measures.

(2) Gold equivalent ounces are based on a conversion ratio of 70:1 for silver to gold. This is the referenced ratio for each year throughout the release.

Key operating and financial statistics for the three and nine months ended Sept. 30, 2018, and Sept. 30, 2017, are outlined in the attached table.

                                                      Three months ended   Nine months ended
                                                                Sept. 30            Sept. 30
                                                            2018    2017        2018    2017
Financial data 
(in millions except for earnings (loss) per share) 
Revenue                                                    $41.3   $28.7      $144.4  $115.6
Gross profit (loss)                                        $(3.3)   $3.6       $28.0   $23.1
Net income (loss)                                          $(2.7)   $0.4        $9.9   $18.7
Earnings (loss) per share -- basic                        $(0.02)  $0.00       $0.06   $0.11
Adjusted net income (loss) (1)                             $(1.0)  $(0.4)      $13.9    $8.6
Adjusted earnings (loss) per share -- basic (1)           $(0.01) $(0.00)      $0.08   $0.05
Cash flow from operating activities before changes 
in non-cash operating working capital                      $10.9    $5.7       $48.9   $34.2
Cash and cash equivalents                                  $20.6   $37.5       $20.6   $37.5
Net cash (1)                                               $12.6   $37.5       $12.6   $37.5
Gold production and cost data                              
GEOs loaded to the pads (2) (5)                           67,244  64,486     222,891 173,335
GEOs projected recoverable (2) (3) (5)                    37,763  36,630     121,932 100,772
GEOs produced (2) (4) (5)                                 34,165  24,280     113,459  91,717
GEOs sold (2) (5)                                         34,248  23,160     113,152  93,080
Average realized sales price                              $1,212  $1,270      $1,282  $1,250
Cash cost per gold ounce sold (1)                           $867    $893        $735    $798
All-in sustaining cost per gold ounce sold (1)              $988  $1,063        $862    $931

(1) These are non-IFRS measures.

(2) Gold equivalent ounces are based on a conversion ratio of 70:1 for silver to gold. This 
is the referenced ratio for each period throughout the release.

(3) For 2018, the expected recoverable gold equivalent ounces are based on the assumptions 
and parameters as set forth in the El Castillo complex technical report dated March 27, 
2018, and the La Colorada gold/silver mine technical report dated March 27, 2018. In 
periods where the company mines material not specifically defined in a technical report 
(for example, low-grade stockpile material), management uses its best estimate of recovery 
based on the information available. For 2017, the expected recoverable gold equivalent 
ounces are based on the following: (i) El Castillo expected recovery rates: ROM oxide, 
50 per cent; crushed oxide, 70 per cent; ROM transition, 40 per cent; crushed transition, 
60 per cent; crushed sulphides argillic, 30 per cent; and crushed sulphides silicic, 17 per 
cent; (ii) San Agustin expected recovery rates: gold, 66 per cent; and silver, 16 per cent; 
and (iii) La Colorada expected recovery rates: gold, 60 per cent; and silver, 30 per cent.

(4) Produced ounces are calculated as ounces loaded to carbon.

(5) The three and nine months ended Sept. 30, 2017, include precommercial production from San 
Agustin.

(6) As the San Agustin project was in the preproduction development stage as at Sept. 30, 
2017, the gold equivalent ounces produced are excluded from the revenue, gross profit, net 
income, earnings per share, adjusted net income (loss), cash flows from operations, cash cost 
and all-in sustaining cost numbers presented in this release for the three and nine months 
ended Sept. 30, 2017.  

Third quarter 2018 and recent company highlights:

  • Corporate highlights:
    • Achieved a milestone of one million gold equivalent ounces of production since the launch of the company at the end of 2009;
  • El Castillo complex:
    • Third quarter production of 26,894 gold equivalent ounces:
      • El Castillo production of 10,368 gold equivalent ounces;
      • San Agustin production of 16,526 gold equivalent ounces;
  • La Colorada:
    • Third quarter production of 7,271 gold equivalent ounces;
    • Resumed blasting in late July and returned to normal operations during the third quarter;
  • Cerro del Gallo:
    • Initiated metallurgical testwork;
  • Magino:
    • Advanced environmental assessment process (federal and provincial);
  • San Antonio:
    • Held technical sessions with the Mexican environmental authority, DGIRA, in preparation of new future environmental impact assessment (manifiesto de impacto ambiental or MIA) application submission.

Financial results -- third quarter of 2018

Revenue for the three months ended Sept. 30, 2018, was $41.3-million, an increase from $28.7-million for the three months ended Sept. 30, 2017. During the third quarter of 2018, gold ounces sold totalled 33,179 at an average realized price per ounce of $1,212, compared with 22,206 gold ounces sold at an average realized price per ounce of $1,270 during the same period of 2017. Gold ounces sold for the three months ended Sept. 30, 2018, increased compared with the same period in 2017, primarily due to the commencement of commercial production at the San Agustin mine effective Oct. 1, 2017.

Production costs for the third quarter of 2018 were $29.9-million, an increase from $20.3-million in the third quarter of 2017, primarily due to an increase in gold ounces sold, offset by a decrease in cash cost per gold ounce sold. Cash cost per gold ounce sold was $867 in the third quarter of 2018, a decrease from $893 in the same period of 2017, primarily due to the commencement of commercial production at the San Agustin mine effective Oct. 1, 2017, which has a lower cash cost per gold ounce sold. Depreciation, depletion and amortization (DD&A) expense included in cost of sales for the third quarter of 2018 totalled $7.9-million, an increase from $4.8-million in the third quarter of 2017, due to the increase in gold ounces sold, as many of the mining assets are amortized on a unit-of-production basis, and the commencement of commercial production at the San Agustin mine, which has a higher DD&A expense per ounce. Additionally, included in cost of sales in the third quarter of 2018 is a non-cash impairment writedown of $4.4-million at the El Castillo mine and $2.5-million at the La Colorada mine related to the net realizable value of work-in-process inventory, as a result of the decrease in the price of gold as at Sept. 30, 2018.

General and administrative expenses for the third quarter of 2018 were $2.7-million, comparable with $2.7-million in the same period of 2017.

Gains on foreign exchange derivatives for the third quarter of 2018 were $200,000, comparable with $200,000 in the third quarter of 2017.

Other income for the third quarter of 2018 was $1.2-million, an increase from $0.0-million in the third quarter 2017, primarily due to differences in foreign currency translation effects.

Income tax recovery for the third quarter of 2018 was $2.4-million, compared with income tax expense of $200,000 in the same period of 2017. The change is primarily due to the foreign exchange effects of the strengthening Mexican peso on the calculation of deferred taxes and the deferred tax effect of the non-cash impairment writedown of work-in-process inventory in the third quarter of 2018.

Net loss for the third quarter of 2018 was $2.7-million or two cents per basic share, a decrease from net income of $400,000 or nil per basic share for the third quarter of 2017.

Financial results -- first nine months of 2018

Revenue for the nine months ended Sept. 30, 2018, was $144.4-million, an increase from $115.6-million for the nine months ended Sept. 30, 2017. During the first nine months of 2018, gold ounces sold totalled 108,665 at an average realized price per ounce of $1,282, compared with 90,129 gold ounces sold at an average realized price per ounce of $1,250 during the same period of 2017. Gold ounces sold for the nine months ended Sept. 30, 2018, increased compared with the same period in 2017, primarily due to the commencement of commercial production at the San Agustin mine effective Oct. 1, 2017, partially offset by a reduction in gold ounces produced and sold at the El Castillo mine.

Production costs for the nine months ended Sept. 30, 2018, were $85.0-million, an increase from $74.9-million in the first nine months of 2017, primarily due to an increase in gold ounces sold, offset by a decrease in cash cost per gold ounce sold. Cash cost per gold ounce sold was $735 in the first nine months of 2018, a decrease from $798 in the same period of 2017, primarily due to the commencement of commercial production at the San Agustin mine effective Oct. 1, 2017, which has a lower cash cost per gold ounce sold. DD&A expense included in cost of sales for the nine months ended Sept. 30, 2018, totalled $24.6-million, an increase from $17.6-million in the nine months ended Sept. 30, 2017, due to the increase in gold ounces sold, as many of the mining assets are amortized on a unit-of-production basis, and the commencement of commercial production at the San Agustin mine, which has a higher DD&A expense per ounce. Additionally, included in cost of sales during the first nine months of 2018 is a non-cash impairment writedown of $4.4-million at the El Castillo mine and $2.5-million at the La Colorada mine related to the net realizable value of work-in-process inventory, as a result of a decrease in the price of gold as at Sept. 30, 2018.

General and administrative expenses for the nine months ended Sept. 30, 2018, were $9.6-million, an increase from $8.8-million in the same period of 2017, primarily due to employee related costs.

Gains on foreign exchange derivatives during the first nine months of 2018 were $600,000, a decrease from $2.6-million in the first nine months of 2017, due to a decrease in realized gains on the company's zero-cost collar contracts on the Mexican peso.

Other income for the nine months ended Sept. 30, 2018, was $100,000, a decrease from $3.0-million in the same period of 2017, primarily due to differences in foreign currency translation effects.

Income tax expense for the nine months ended Sept. 30, 2018, was $7.9-million, compared with income tax recovery of $0.0-million in the same period of 2017. The change is primarily due to a greater foreign exchange effect of the strengthening Mexican peso on the calculation of deferred taxes in 2017 and the recognition of previously unrecognized Mexican deferred tax assets in the first quarter of 2017.

Net income for the nine months ended Sept. 30, 2018, was $9.9-million or six cents per basic share, a decrease from $18.7-million or 11 cents per basic share for the nine months ended Sept. 30, 2017.

Operational results -- third quarter of 2018

During the third quarter 2018, the company achieved production of 34,165 gold equivalent ounces at a cash cost of $867 per gold ounce sold and all-in sustaining cost of $988 per gold ounce sold, compared with 21,348 gold equivalent ounces, excluding precommercial production from the San Agustin mine of 2,932 gold equivalent ounces at a cash cost of $893 per gold ounce sold and an all-in sustaining cost of $1,063 per gold ounce sold during the third quarter of 2017. Higher production and lower costs were driven by the commencement of commercial production at the lower-cost San Agustin mine effective Oct. 1, 2017.

The El Castillo complex produced 26,894 gold equivalent ounces at a cash cost of $786 per gold ounce sold during the third quarter of 2018, versus 11,521 gold equivalent ounces, excluding precommercial production from the San Agustin mine of 2,932 gold equivalent ounces, at a cash cost of $947 per gold ounce sold during the third quarter of 2017. Higher production and lower costs were driven by the commencement of commercial production at the lower cash cost San Agustin mine effective Oct. 1, 2017.

La Colorada produced 7,271 gold equivalent ounces at a cash cost of $1,152 per gold ounce sold during the third quarter of 2018 compared with 9,827 gold equivalent ounces at a cash cost of $827 per gold ounce sold during the third quarter of 2017. Lower production and higher costs were driven by the processing of low-grade stockpiled material during the period where the company lacked the ability to blast. The company regained the ability to blast in late July and saw operations and costs normalize during the third quarter.

Bill Zisch, chief operating officer, commented: "During the third quarter, our productivity in both mining and crushing were at budgeted levels given our expectations during the rainy season. At the El Castillo complex, we saw crushing rates at El Castillo improve quarter over quarter as we moved towards nameplate capacity at the CR2 crusher and we continued to see outperformance at San Agustin. At La Colorada, we experienced lower production and higher cash cost as a result of processing material from low-grade stockpiles stacked on the leach pad during the second quarter when we lacked the ability to blast. With our blasting permit suspension lifted in late July, we saw our mining rates and unit costs normalize over the quarter. We are on track to meet the low end of our annual production guidance despite lacking the ability to blast at La Colorada for essentially an entire quarter. With improved productivity at El Castillo, San Agustin's continued outperformance and La Colorada operations now normalized, we are well positioned for strong quarterly production to finish the year."

2018 production and cost guidance

The company is guiding to the lower end of its full-year guidance range of between 165,000 and 180,000 gold equivalent ounces. Cash cost per gold ounce sold is expected to be at the upper end of the full-year guidance of $700 and $800. All-in sustaining cost per gold ounce sold is also expected to be at the upper end of the full-year guidance range of $850 and $950.

2018 capital estimate

The company has revised its 2018 capital estimate to between $37-million and $40-million (previously $40-million to $45-million), primarily due to a timing change which moved spending from 2018 into 2019.

Argonaut Gold third quarter operational and financial results conference call and webcast

The company will host the third quarter 2018 conference call and webcast on Nov. 9, 2018, at 8:30 a.m. EST.

Q3 conference call information

Toll-free (North America):  1-888-231-8191

International:  1-647-427-7450

Conference ID No.:  5897603 followed by the pound key

Webcast:  at the company's website

Q3 conference call replay

Toll-free replay call (North America):  1-855-859-2056

International replay call:  1-416-849-0833

The conference call replay will be available from 11:30 a.m. EST on Nov. 9, 2018, until 11:59 p.m. EST on Nov. 16, 2018.

Non-IFRS measures

The company has included certain non-IFRS measures including cash cost per gold ounce sold, all-in sustaining cost per gold ounce sold, adjusted net income (loss), adjusted earnings (loss) per share, basic, and net cash, in this press release to supplement its financial statements which are presented in accordance with IFRS. Please see the management's discussion and analysis (MD&A) for full disclosure on non-IFRS measures.

This press release should be read in conjunction with the company's unaudited interim condensed consolidated financial statements for the three and nine months ended Sept. 30, 2018, and the associated MD&A for the same periods, which are available from the company's website in the investors section under financial filings and under the company's profile on SEDAR.

Qualified person, technical information and mineral properties reports

Technical information included in this release was supervised and approved by Brian Arkell, Argonaut's vice-president, exploration, and a qualified person under National Instrument 43-101. For further information on the company's material properties, please see the reports as listed below on the company's website or on SEDAR:

  • El Castillo complex: National Instrument 43-101 technical report on resources and reserves, El Castillo complex, Durango, Mexico, dated March 27, 2018 (effective date of March 7, 2018);
  • La Colorada mine: NI 43-101 technical report on resources and reserve, La Colorada gold/silver mine, Hermosillo, Mexico, dated March 27, 2018 (effective date of Dec. 8, 2017);
  • Magino gold project: feasibility study technical report on the Magino project, Ontario, Canada, dated Dec. 21, 2017 (effective date Nov. 8, 2017);
  • San Antonio gold project: NI 43-101 technical report on resources, San Antonio project, Baja California Sur, Mexico, dated Oct. 10, 2012 (effective date of Sept. 1, 2012).

About Argonaut Gold Inc.

Argonaut Gold is a Canadian gold company engaged in exploration, mine development and production activities. Its primary assets are the production-stage El Castillo mine and San Agustin mine, which together form the El Castillo complex in Durango, Mexico, and the production-stage La Colorada mine in Sonora, Mexico. Advanced-exploration-stage projects include the San Antonio project in Baja California Sur, Mexico, the Cerro del Gallo project in Guanajuato, Mexico, and the Magino project in Ontario, Canada. The company also has several exploration-stage projects, all of which are located in North America.

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